On Oct. 13, the Labor Department released data that showed the consumer price index rose 8.2% in September. Over the past year, the core inflation index, which excludes food and energy, increased 6.6%, the highest level since September 1982. The latter number is very concerning because it proves that the underlying inflation trends are headed in the wrong direction. Supply chain issues, pent-up consumer demand and economic stimulus from the pandemic have partially driven inflation.
Inflation has been rapid for some 18 months. Our continued high inflation numbers have surprised economists and policymakers. During this period, they expected our inflation rate to cool down, but the data has repeatedly proved them wrong. On June 7, Treasury Secretary Janet Yellen acknowledged that she and Federal Reserve Chairman Jerome Powell “could have used a better word than ‘transitory’ when describing the expected run of inflation in the U.S. economy.” Yellen said, “I do expect inflation to remain high although I very much hope that it will be coming down now.”
Inflation has widened across the economy, eroding Americans’ purchasing power and forcing many Americans to rely on savings and credit cards to maintain their living standards. The report highlighted the increased costs of shelter, food and medical care. As weighed by the CPI, shelter represents nearly a third of consumers’ costs.
According to the Labor Department, certain household goods and services have risen significantly — airline fares (42.9%), gasoline (18.2%), electricity (15.5%), food at home (13%) and new vehicles (9.4%).
Fed is expected to raise rates again
Fed watchers predict that our central bank will increase overnight rates an additional 75 basis points at their November meeting to a range of 3.75% to 4.00%. Officials have estimated that borrowing costs will hit 4.6% by the end of 2023. The Fed’s rate hikes are intended to cool the economy and tame inflation.
Despite the Federal Reserve implementing five consecutive interest rate increases, the efforts by the Fed to stem inflation have made little progress to date. Federal Reserve Chairman Jerome Powell said in a press conference: “That tells us we need to keep doing these. The Fed is strongly resolved to bring inflation down to 2%, and we will keep at it until the job is done.”
Kansas City Fed President Esther George said in an interview in September, “With interest rate hikes, a lag effect on prices can take six to 12 months.”
The average rate on a 30-year mortgage recently rose to 6.85%, the highest rate since 2007. These higher costs have slowed down home sales. Data from the National Association of Realtors (NAR) showed home sales were down 5.9% in July. This represents the sixth month in a row that sales have declined. Median sales prices for existing homes declined to $403,800 in July, down $10,000 from June. In addition, economists expect higher rates will filter through the rest of the economy. Higher interest rates will make it more expensive to borrow money for big purchases or business expansions.
Our high inflation numbers have triggered the highest Social Security cost-of-living adjustment (COLA) in decades to 8.7% for beneficiaries. The average Social Security benefit will increase $146 per month to $1,827 in 2023.
A New York Times article, “Inflation Remains Voters’ Top Concern. Can Republicans Keep their Focus?” reported that inflation and the economy remain the top concerns on voters’ minds. The New York Times/Siena poll shows that 49% of respondents believe that economic issues such as jobs, taxes and cost of living were likely to determine their votes in November. This compares with 31% who saw societal issues such as abortion, guns or democracy as decisive. More than 50% of registered voters said they agreed with Republicans on the economy, versus 38% who said they agreed with Democrats.
Originally published in the Sarasota Herald-Tribune
